NEWSREEL SPOKESMAN: The President and Mr. Kaiser see a 10,000 ton cargo ship slide down to the sea in a perfect launching, a heart-chilling fact for Tokyo and Berlin.

SPENCER MICHELS: In the midst of the shipbuilding fury of World War II industrialist Henry J. Kaiser set up a health plan to provide prepaid medical services to thousands of workers in his shipyard at Richmond, California. The workers were not a healthy lot. Most had been rejected by the army and Kaiser wanted to keep them on the job by tending to their illnesses and by offering preventative medicine. After the war, Kaiser expanded the health plan. He soon ran into opposition from the medical establishment, which often branded his form of health care “socialized medicine.”

Today–in the era of managed care–Kaiser Permanente has become the medical establishment. It is not only the oldest Health Maintenance Organization, but the largest in the country–with nearly 9 million members and 10,000 doctors in 19 states and the District of Columbia. Kaiser’s head start in organizing and integrating services, a kind of one-stop shopping, made it a model for other HMO’s, according to Stanford health economist Alain Enthoven.

ALAIN ENTHOVEN, Stanford Economist: I think Kaiser is really the single most important factor in the whole health care economy.

ALAIN ENTHOVEN: And Kaiser is much better organized, more efficient, effective, could offer lower price better value for money. So, the rest of the system had to come around and compete with Kaiser on Kaiser’s terms.

SPENCER MICHELS: But now that the system has come around, Kaiser has started to face tough competition itself. How it has handled that competition has called into question the quality of care and service that used to distinguish Kaiser and has raised issues about how HMO’s in general can handle today’s cost-cutting environment. The basis of Kaiser’s problems is, indeed, financial. Other HMO’s cut costs by reducing the use of hospitals and cutting doctors’ salaries. Those two areas were tough ones for Kaiser because it owns its own hospitals and its doctors are partners, not employees.

ALAIN ENTHOVEN: Their competitors, Health Net and Pacific Care, were able to drive very hard bargains with hospitals because they could go to hospitals and say, you know, there are four or five times as many hospitals around here as are needed, so we demand this very low price, and it doesn’t include paying for your overhead. While Kaiser, owning their own hospital system, had to support their own overhead.

SPENCER MICHELS: Eventually, Kaiser doctors did vote to cut their own salaries by 10 percent. And the organization decided to close some of its own hospitals and use community hospitals. Unused patient rooms were converted to offices. But Kaiser still had far to go to get the bottom line it wanted. So it began cutting the size of its nursing staff. The nurses staged short walkouts recently at Kaiser Hospitals in California, claiming that the emphasis on the bottom line was starting to affect patient care. Terry Ross is an organizer with the California Nurses Association.

TERRY ROSS, California Nurses Association: The real issue for us is that managed care in this country has become less care. And part of that less care is cutting registered nurses out of patient care and substituting people who are unlicensed and have less experience. And we feel that that’s dangerous to patients.

SPENCER MICHELS: But Kaiser says the strike and patient care are unrelated. Pat Mandel is a medical group administrator in San Francisco.

PAT MANDEL, Kaiser Administrator: Patient care and quality of care is not the issue. We’re talking about economic issues: salaries, wages, benefits. We’re monitoring quality now like we’ve never monitored it before, so, in my opinion, the quality of care has improved, and Kaiser Permanente of all HMO’s has a history and a tradition of providing that high quality care.

SPENCER MICHELS: But that quality of care was called into question when federal officials investigated alleged delays in emergency room services at some Kaiser hospitals, as well as possible violations of patient safety standards, including difficulties in finding ambulances. Kaiser has acknowledged such problems and has blamed some of them on staffing shortages at some facilities. Kaiser officials claim most complaints relate to paperwork and, as such, are not life threatening. And government investigators say Kaiser is now mostly in compliance with the rules. Even though Kaiser fixed those problems, even though patient surveys still show a high level of satisfaction, quality of care has begun to be an issue among more and more members, according to Bruce Livingston of the consumer group Health Access California.

BRUCE LIVINGSTON, Health Access America: We’re finding quite a number of people who are concerned about access to care, who are concerned about getting a second opinion, getting access to specialists, how quickly they get appointments, how quickly the phones get answered.

SPENCER MICHELS: Concern about those issues is widespread even among those Kaiser patients who like the system.

RENA MODEL: Managed care is in. Yes.

BERKELEY DRIESSEL, Kaiser Patient: I love the system, except they’re making certain kinds of changes. One is the Permanente group which runs the doctors is driving them too hard, and they’re working too hard.

PEARL CALDWELL: When I go to see my primary care doctor, I’m in there barely 10 minutes, and she’s got to rush me right through and rush me right out again.

RENA MODEL: They saved my life with an operation, and because I am an assertive person, I saw to it that I got the care. It’s a tricky system to go through, but it’s there for you if you know how to work it.

SPENCER MICHELS: Kaiser officials admit they have neglected what they call “service” over the years. As with other medical plans, waits have sometimes been too long; getting an appointment with a doctor or getting advice on the phone from a nurse has not been prompt.

HEALTH CARE WORKER: What symptoms was she having?

SPENCER MICHELS: Officials point to this newly opened phone center, that handles some of the 50 to 60 million phone calls a year, as evidence that they are trying to improve the system.

HEALTH CARE WORKER: –Are you trying to get an appointment?

SPENCER MICHELS: As for the amount of time doctors can spend with patients, department head Dr. Dewey Woo, a pediatrician at San Francisco Kaiser for eight years, says there is flexibility in appointments.

DR. DEWEY WOO, Pediatrician: I determine how much time we feel is appropriate with my pediatric colleagues and whether, for example, that’s 10 minutes for an urgent care visit or let’s say 30 minutes for a newborn visit. Now, during wintertime, kids get sick, come in for their asthma, et cetera, it’s very stressful. You know, you do have to double-book patients, et cetera. But I’m not aware of any medical practice that doesn’t have to do that.

SPENCER MICHELS: Kaiser has also been criticized for sending home mothers and new babies after just 24 hours in the hospital. The practice brought calls from politicians for legislation to ensure longer hospital stays. Dr. David Lawrence, a pediatrician, is chief executive officer of Kaiser.

DR. DAVID LAWRENCE, CEO, Kaiser: What I say is that’s great politics and lousy medicine. There are many women who choose to go home within 12 hours or 24 hours because they want to be at home with their new baby and their family. And that’s a decision that gets made by the clinician, the doctor, together with the mother. It’s not made by me. It’s not made by a health plan. It’s not made by some external body.

SPENCER MICHELS: Like a politician.

DR. DAVID LAWRENCE: Or–it shouldn’t be done by a politician either.

SPENCER MICHELS: Another complaint against Kaiser is that it requires patients who believe they’ve been damaged by medical treatment to go to arbitration, in lieu of filing a malpractice suit. Most other California HMO’s follow that practice, though nationally it is not so widespread. The California Supreme Court ruled recently that there is evidence Kaiser committed fraud and deliberately delayed arbitrating a case of a patient who was dying to save money. Kaiser’s Lawrence admits there were delays but defends arbitration as fairer and faster than malpractice suits in the courts.

DR. DAVID LAWRENCE: We have made changes in our system, particularly since the case you referred to. We’ve appointed a blue ribbon advisory panel to help us examine our arbitration process and make further changes in it.

BRUCE LIVINGSTON: If there is going to be binding arbitration, it should be quick and it should be with an independent arbitrator. It should not be done in-house by Kaiser.

SPOKESMAN: Now, provided you did go with the grievance system with Health Net already–

SPENCER MICHELS: Kaiser is not alone in attracting complaints. California maintains a very busy hotline for the public to report problems with all HMO’s. But Kaiser has been regarded as the leader and its performance as the benchmark for the future of managed care. The complaints generated against Kaiser and other HMO’s have led to a slew of proposed legislation to regulate these organizations.

BRUCE LIVINGSTON: It’s very clear that government needs to start looking at HMO’s and to start regulating this industry. Now, you have bureaucrats up the chain that are making final medical decisions. We want medical directors to be these people who make the final decision on denial of care to be licensed and practiced in our state.

SPENCER MICHELS: Kaiser’s leadership–unlike that of most other HMO’s–is calling for some regulation of health care, such as quality standards, but on a federal, rather than a state level.

DR. DAVID LAWRENCE: Health care needs to have a coherent set of expectations built around it, a coherent set of rules around it. The most divisive thing that can occur is when those rules are built state by state by state, because they vary widely.

SPENCER MICHELS: Kaiser’s struggle has changed over the years. At its birth it had to fight traditional fee-for-service doctors who distrusted change. To survive intact today the huge HMO must navigate its way through the ever-changing revolution Henry J. Kaiser helped launch.

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